A New Token “Stores” Gas, Allowing Users to Save on Ethereum Fees
Ethereum (ETH)’s fees are hard-coded to only be payable in Ether, but a clever trick with smart contracts allows users to effectively pay for gas with a special token, which reduces the total fee incurred.
This principle was used by the team behind 1inch.exchange, a decentralized exchange aggregator, to create the Chi token. The technology was formally unveiled on June 5, and it is built on a previous iteration of the concept, known as Gas Token (GST).
How does it work?
Chi relies on a mechanism which refunds gas when storage space is freed on the Ethereum virtual machine. In the case of gas tokens, burning them destroys dummy “sub-smart contracts” that were created when the tokens were minted, which is more efficient than erasing data directly, according to the team.
Chi tokens are meant to be created when the gas fees on Ethereum are low, which allows the user to “store” that price for later use. As the CEO of 1inch.exchange, Sergej Kunz, explained at the ETHGlobal hackathon, this is especially useful for deploying smart contracts, an operation which can take millions of gas. To put that in perspective, the total gas limit for a block is now 10 million.
To reduce fees, the token must be burned together with the primary operation, which cuts the total amount of gas spent in that transaction. This is because the refund operation cannot result in zero or negative total gas usage — which means that it must be joined with another action to be effective.
Still, Chi’s creators state that the token can reduce the price of a transaction by as much as 50%.
The impact on Ethereum’s fee market
The ability to lock in low gas prices during periods of inactivity could have significant consequences for Ethereum’s fee market.
As said by Vitalik Buterin and other developers in their discussions regarding the earlier Gas Token, the mechanism could smooth out the price of gas between periods of high and low activity. Users would stock up on gas tokens when it’s cheap to do so, and burn them when gas fees rise, thus balancing the overall demand for gas.
Anton Bukow, 1inch.exchange’s CTO, was nonetheless skeptical that Chi would change the fee economics of Ethereum:
“I don’t think this will change anything, except that users have a way of tokenizing the price of gas, and they will be able to speculate on it.”
Bukov noted that Chi is already used on the 1inch platform, letting users save on fees with token swaps.
On the other hand, the Gas Token, developed in 2018, largely failed to get wide adoption since “few people understood how it works,” Kunz explained.
Bukov said that GST also had an issue interacting with the ERC-20 standard, which resulted in “wallets and even Etherscan showing the wrong balance.”
While GST was used mostly by arbitrageurs, Kunz said, the direct integration with 1inch.exchange attracted attention of other users as well. He also said that some decentralized finance providers are planning to integrate Chi in their systems.